STATE OF NEW YORK
INSURANCE DEPARTMENT25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on March 16,
2004, representing the position of the New York State Insurance Department.

Re: Insurance Agents/Commissions;

Insurance Law Article 21

Question Presented:

May an insurer withhold commission from an agent due to a dispute over
commissions previously paid by the insurer to the agent for a non-related account?

Conclusion:

The agent's responsibility to return previously paid commissions must
be derived from the specific provisions of the Agency-Company agreement. The insurer's
right to recoup such "unearned" commission and the method(s) that may be
utilized must be specified in the agreement.

Facts:

The dispute relates to an ongoing agency relationship between the
inquirers agency ("the agency") and a New York insurer group ("the
Insurer"). The Agency-Company agreement was executed in 1982 and has remained in
force over the past 22 years. The dispute concerns premiums that were payable in 2000 but
were never actually paid. The insurer has paid the agency commissions on the policy. The
subject insured has been out of business for the past three years.

The insurer has asserted a claim against the agency for the commissions
paid to the agency on the unpaid premiums. It seeks to "set-off" the amount of
commissions paid to the agency on the 2000 policies against commissions due to be paid on
current unrelated accounts.

Analysis:

"In the absence of specific agreement to the contrary, an agent
who has performed all services contemplated is entitled to recover and retain his
commission " 13 Holmes' Appleman on Insurance Law and Practice § 97.12
(2nd ed. 2000). The same treatise states that "[t]he general insurance rule is that
the right of an insurance agent to commission, salary or other compensation is governed by
the terms of the contract of employment or agency between agent and insurer." 13 Holmes'
Appleman on Insurance Law and Practice § 97.2 (2nd ed. 2000).

The circumstances presented in the instant matter concern a policy
issued in 2000. Presumably, all commissions due to the agency on the policy were paid
several years ago. The insurer, for reasons not stated, failed to ever collect the
premiums from the insured. It now seeks to recover the commissions paid to the agency on
that policy. To accomplish that it proposes to take a set-off against commissions payable
to the agency for policies written on current accounts of insureds with no relationship to
the insured under the policy written in 2000.

The insurer's claim for recovery of previously paid commissions must be
based upon specific language in the Agency-Company agreement or some other legal principle
that would support holding the agency liable for return of the commissions.

The Department will not interfere with a private contract between an
insurer and an insurance agency, provided that the agreement does not otherwise violate
the Insurance Law. Rather, it would be for a court of competent jurisdiction to make such
a determination under applicable law. We suggest that the inquirer contact private
counsel.

For further information you may contact Associate Attorney Sam Wachtel
at the New York City Office.